Collateral Control Services for Banks, Traders

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Collateral Control Services for Banks, Traders
Suppliers
europe mena eurasia west africa east
africa southern africa south asia far east
latam
www.ace-group.net
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CONTENT
ACE Global3-12
Introduction and Services Transactional Finance
Risk Mitigants13-20 Business
Process and Overview21-24 E3C-
Enhanced Credit Commodity Control..25-29
Legal Appraisal and Definitions..30
-32 Group Contact Details..33-3
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• Structured trade finance and supplier credit
  requires effective monitoring, control and
  protection of title to goods, receivables and
  documents at all times during the transaction
  cycle. ACE GLOBAL DEPOSITORY and its affiliates
  have developed strategic partnerships with banks
  and vendors since 1996 to deliver on-site trading
  asset management services worldwide through our
  offices in 46 countries.
• Today we deliver bonded, cost-effective services
  appropriately designed to optimize our clients
  business objectives to either enhance their
  market share, reduce costs while mitigating
  client and suppliers risks along their supply
  chain
• ACE GLOBAL DEPOSITORY (ACE GLOBAL) is a leading
  Collateral Control organisation and provides
  sophisticated collateral control services using
  adequate credit support tools relevant in respect
  of field warehousing, collateral management,
  secured distribution, certified inventory control
  services and certified accounts receivable
  services, as well as field audits, inspection,
  monitoring, all to an international clientele.
• Our team comprises of operational experts ,
  bankers, credit support personnel, legal
  advisors, financial officers and chartered
  accountants supported by the physical presence
  and field expertise of a worldwide network of
  trained inspectors, providing unique service in
  the field of international collateral risk
  management.
• Through its world-class systems and staff, ACE
  GLOBAL is able to identify and secure the weak
  links in value chains or design whole and
  entirely secured value chains for the account of
  its partners in any location.

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ACE GLOBAL A Snapshot

• FACTS
• Present in 46 countries worldwide
• Have provided Collateral Control and asset
  Management to 172 financial institutions
• Total assets in custody in excess of US 9
  billion
• More than 4,800 employees
• HISTORY
• ACE GLOBAL, an international Collateral Control
  Company created in 1996 to assist
• Banks, Financial Institutions to mitigate their
  transactional risks inherent in local, regional
  and international trade.
• Emergent Countries to make safe the revenues from
  taxes and special taxation
• ACE GLOBAL commenced its operations in Uganda in
  1996. By end of the year, ACE GLOBAL was present
  in 5 countries in Southern and East Africa.
• From 1999 to 2008, ACE GLOBAL extended its
  activities in 17 countries.
• Since 2009, ACE GLOBAL has expanded its network
  for another 26 countries.
• ACE GLOBALs near term target is to establish its
  presence in Eastern Europe and Central Asia.
• Currently own laboratories in 5 countries and is
  investing in new laboratories.
• International Certification Manual ISO 17020
  2011 duly prepared and distributed. Internal
  Audit underway pending certification. Grain and
  Feed Trade Association (GAFTA) The Federation
  of Oils, Seeds and Fats Association (FOSFA)
  members.

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ACE GLOBAL - Operations
Operation through ACE subsidiaries, affiliates and associates Operation through ACE subsidiaries, affiliates and associates Operations through Agents   Operations through Agents  
  Angola Argentina Benin Brazil Burkina Faso Burundi Cameroun Central African Republic Cote dIvoire Democratic Republic Congo Dubai (UAE) Djibouti El Salvador Ethiopia Egypt Gambia Ghana Guinea-Bissau Guinea Conakry India Indonesia Kenya Liberia Malawi Mali Mauritania Mozambique Morocco Niger Nigeria Pakistan Rwanda Senegal Sierra Leone Singapore South Africa Sudan Switzerland Tanzania Thailand Togo Turkey Uganda Vietnam Zambia Zimbabwe    Australia Belgium Bulgaria Bangladesh Canada Estonia France Germany Greece Italy/Chypre Jordan Libya Lebanon   14. Mexico Mauritius Madagascar Portugal Romania Saudi Arabia Spain Syria The Netherlands Tunisia Russia Ukraine USA Venezuela
Company incorporation under process Bahrain,
Saudi Arabia, Romania, Panama, Kingdom of
Lesotho, Chad, El-Salvador, Tajikistan
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ACE GLOBAL Professional Liability Insurance
Cover

• To indemnify the insured against legal liability,
  costs or expenses arising out of insureds
  operation
• Area covered Worldwide
• Limit of liability 100 million (per event /
  per occurrence)
• No claims made on PI since inception (18 years)

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Financing and Structuring Opportunities ACE
GLOBAL Services
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ACE GLOBAL - Collateral Control Services
ACE GLOBAL provides a One-Stop Shop across the
commodity value chain.
ACCS
Distribution End Users
Crop Finance
Tanks/Silos Shipping Rail Pipelines
Refiners Mills Crushers Factories
Breweries
Tanks/Silos Shipping Rail Pipelines
Tax and Duty collection
Existing relationship
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ACE GLOBAL Solutions
Financial Structuring services Commercial Engineering services Operational Risk Management services General Services
Structured Trade and Commodity Financing KYCC services Commodity profile Contract Farming Services Trade Flow Facilitation Commodity Pricing Supervising Aid management Field Warehousing Collateral Management Secured Distribution Certified Inventory Control Certified Accounts Receivable Services Monitoring Field Audit and Inspection Consultancy Advisory Legal Training
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Services

• ACE GLOBAL conducts its own legal due diligence
  in respect of bespoke services offered viz.
• Field Warehousing is essentially a method
  whereby a borrowers trading assets are used as
  security at the borrowers own premises for a
  loan or financing. It is a security instrument
  which enables the borrower, to deliver to the
  Bank legally valid documents of title and to
  grant a possessory pledge over goods stored in
  the borrower's own plant, mill, refinery or
  warehouse via the legal principle of Bailment. In
  order for a field warehouse and the lien created
  thereby to be recognized as valid, the possession
  of the Collateral Controller must be exclusive,
  notorious and continuous. All the ACE GLOBAL
  operating procedures have been devised to comply
  with this standard.
• Collateral Management Under Collateral
  Management operations, the storage premises are
  owned and operated by an independent third party
  without the influence of the borrower. Field
  Warehousing and Collateral management agreements
  hence differ inter alia, on the basis of the
  ownership, control and release mechanism within
  storage facilities. Under collateral management
  it is therefore essential to devise a methodology
  for maintaining control, custody and possession
  and for effecting release, all of which binds the
  third party to the Collateral Controller as per
  the mechanism agreed by the Bank. In such
  Collateral Management Operations, it is this
  third party which is the original goods father in
  respect of such goods i.e. on behalf of the owner
  of the goods which first deposits the goods with
  the third party for storage.
• Secured Distribution Services This a specialized
  type of Field Warehousing developed to service
  the needs of suppliers of commodities who wish to
  retain ownership of the inventory they supply, or
  to have a possessory lien on the goods till such
  time that payments are received in full against
  such inventory, and to regulate the delivery of
  the inventory to the Buyer. This service has
  been developed by ACE GLOBAL to service both the
  Suppliers needs as well as the Buyers needs and
  the Agreement is adjusted accordingly based on
  the operational requirements.

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Contd.

• Certified Inventory Control This is a service
  used by companies who would like to avail
  financing from banks but not by pledging their
  stocks specifically for this financing. Under
  Certified Inventory control, the company, ACE
  GLOBAL and the bank enter into a tripartite
  agreement. Since no lease is taken under
  Certified Inventory Control (as compared with
  field warehousing), the agreement provides that
  ACE GLOBAL shall have full right of ingress and
  egress to premises where inventory is stored, and
  that ACE GLOBAL shall have access to any of the
  companys inventory records which are necessary
  to render its service. The banker has ACE
  GLOBALs certificate to the extent that its
  reports are accurate and that the assets being
  controlled will not fall below an agreed minimum
  level. ACE GLOBAL will deliver to the Bank
  periodic reports and inventory certificates as
  and when required by the Bank.
• Certified Accounts Receivable Services A
  companys book debts may be worth as much or even
  more than the stocks so any monitoring ACE GLOBAL
  provides would be enhanced by their inclusion.
  This can be done by employing many of the same
  techniques used in Certified Inventory Control.
  ACE GLOBALs survey for example, would include
  the handling of book debts as well as stocks.
  ACE GLOBAL then examines the companys books,
  verifies the balance if necessary, prepares an
  ageing analysis and includes its findings on the
  first Collateral Control Certificate and all
  changes on the subsequent Certificates
• Stock Monitoring and Inspection Services Under
  this Arrangement, the Bank appoints ACE GLOBAL to
  monitor and inspect the physical and where
  required, the documentary handling of the Goods.
  ACE GLOBAL provides these services for the
  account of the Bank and the role of ACE Global is
  solely one of logistical monitoring and
  inspection. In order for ACE GLOBAL to be
  responsible or liable for the condition, quality,
  management or control of the Goods, ACE GLOBAL
  will adopt the more appropriate Collateral
  Control Agreements and not a Stock Monitoring
  Agreement.

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TRANSACTIONAL FINANCE RISK MITIGANTS
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Structured Commodity Finance Fundamentals

• Transactional financing structures necessitate
  either full ownership with stock carried on the
  Lenders balance sheet or registered possessory
  pledge over collateralized stock (dependent on
  Legal requirements per country)
• Ownership evidenced by stock confirmations in
  form of a Warehouse Receipt
• A thorough understanding of demand or supply
  dynamics in each operating country.
• Commodity Risk Storage dynamics, Price, Quality
  , Weight and Quantity
• SCF Product Solutions covers the entire supply
  chain from Off taker, Transport to destination,
  Processor, Producer (foreign and/or local)
• Comprehensive All risks Cargo Insurance covers
  risk of ownership in storage and in transit
  Plus Misappropriation plus FOG and FOQ
• Comprehensive PI and Fraud from the Collateral
  Controller
• Adequate Middle Office to ensure accurate
  monitoring of market prices, stocks and
  portfolio management

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These commodity markets have their own peculiar
features, including
Transaction Performance Risks

• Seasonal fluctuations in prices
• Differential in prices of different grades,
  weight and quality of a given kind of commodity
• "Differential" of the same grade, weight and
  qualities in different marketing centres
• Hazards of deterioration in value during storage
  due to time, quality and weight
• Unpredictability timing of deliveries due to
  inland transport and port congestion
• Risk of deterioration in the quality of the
  commodity to which the sales contracts are
  related
• Risk of volatility of the price of the commodity
  even when the desired quality is unchanged
• Disparities in the quantity and weight of the
  commodity
• Adequacy of insurance to cover the goods whilst
  in storage and in transit and which can be
  claimed in convertible currencies offshore
• Legal risks involving inadequate commercial law
  legislation and insufficient legal systems to
  ensure collateral controls during the value
  chain
• Risks arising from logistical problems from
  transport system failures, poor storage
  facilities, etc

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Risk Mitigation approach
Risk Area Risk Likely Cause Preventative action
1. Commodity 1. Grade/Quality inferior Misrepresentation Incorrect assessment Inadequate handling procedures Weighbridge not calibrated accurately Inspection by Collateral Manager Analysis by independent laboratory Calibration of equipment by Collateral Controller International standards used for analysis Certificate of weight and Analysis issued by Collateral Controller
2. Moisture Inspected incorrectly Measured incorrectly Exposure to elements prior to loading Climatic conditions Inferior Storage construction Collateral Control Engineers issue Certificate on Storage structure Storage Agreement defines responsibility Insurance Cover Certificate of Analysis issued by Collateral Controller
3. Insect infestation Misrepresentation Incorrect inspection Infiltration Inferior Storage construction cross contamination Proximity of infested lots Storage Agreement defines responsibility Insurance Cover Inspection by Collateral Controller on fortnightly basis Fumigation on recommendation from Collateral Controller
4. Defective title/counterfeit title documents/ Borrowers reputation Fraud by Supplier/Storer Commodity stolen Dispute over ownership of commodity Bank holds original documents of title Storage agreements with storers Supplier warrants full title Supplier is also storer in majority of cases Country Manager through KYCC will determine the Crediblity of the borrower
5. weight shortage Inadequate equipment fraud/storer deviating goods weightscale not calibrated Silo scales not calibrated Bad handling favoring spillage updated calibration certificate Country Manager will check for possible by-passes Country Manager will request regular test weighing weighing under surveillance of Local Collateral Manager on behalf of ACE GLOBAL Country Manager to issue protest letter
6. heating self combustion Defective lightning on board vessel holds too high moisture fresh goods poor ventilation lack of follow up check on vessel electic devices moisture testing on arrival regular temperature testing proper and adequate ventilation Country Manager regular monitoring Insurance cover
7. damage to the goods malicious Force majeur leakage/water infiltration bad storage conditions permanent presence of Local Collateral Manager on behalf of ACE GLOBAL proper inspection of warehouse Insurance cover
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Risk Mitigation approach
Risk Area Risk Likely Cause Preventative action
2. Commodity Storage 1. Loss of commodity Lack of controls Incompetent personnel Collusion between Collateral Manager Storer Force Majeure Weight recording incorrect Stored too long - commodity spoiled Collateral Controller independent controls verification The Lender Insurance cover Collateral Controller quantity quality certificates retain as proof of value and exsistance Storage period limited to 12 months
2. Damage to Commodity Storage facilities sub standard Manpower requirements inadequate Theft or Misappropriation Force Majeure Spontaneous Combustion Collateral Control Engineers Report Storage agreement defines responsibility Insurance cover Collateral Controller regular inspections
3. Stored commodity infected/contaminated with disease - Bank sells to end user with subsequent claim for damages 1. Insect infestation 2. Fungi contamination 3. mould 4. Proximity of infested lots Bank has taken out insurance (Public Liability ) Country Manager regular inspections Refuse proximity / Proper separations
4.warehouse not covered by insurance warehouse insurance not properly checked premium not paid insured value to low Deductible to high Proper check of insurance Policy Confirmation from underwriter that premium has bee paid
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Risk Mitigation approach
Risk Area Risk Likely Cause Preventative action
3. Storer 1. Non performance to maintain and store the commodity Financial failure Storage facilities sub-standard Manpower not qualified to manage storage Changes in statutory limitations Collateral Controller leases Storage/warehouse Storage agreement with storer states that the Lender is the owner of the commodity Full commodity insurance cover taken by the Lender
4. Credit 1. Non-performance of payment Client unable to pay / insolvency Economic downturn Cash flow difficulties/financial distress Cheque not cleared Credit approval on off-taker, annual credit review Commodity held at discount to market value for Intrinsic Value The Lender owns commodities None Lender accepted clients must first either present bank guaranteed cheques or payment to be cleared
5. Commodity Value (Sale) 1. Drop in price of commodity Oversupply Economic Downturn Back to Back Sale and Purchase agreement. Hedge purchase price or use appropriate discounting model Use appropriate discounting model, institute triger price levels
6. Commodity Value (Purchase) 1. Incorrect calculation of cost by client 2. Incorrect calculation of purchase price by Bank Inability of client to calculate and include all costs accurately Discount model flawed Bank to review all orders and calculations Generic Discounting Model - Any variations to be approved by Bank line management
7. Pricing Unacceptable return on Capital Changing interest rates Interest rate change Change in statutory requirements Funding a short term advance with long-term funds Rate linked to Prime Funding to be determined by management on a case by case basis Attempt to lock in rate with a short term instrument Generic Discounting Model - 3 hedge
8. Operational (Bank) Fraud / Misappropriation Inadequate controls Statutory Documentation Administration Information Technology Inadequate internal controls Breakdown in basic controls Changes to Act and Regulations Documentation not legally binding Administrative burden too big for administrative department Admin system incompatible Segregation of duties Audit functions (Internal External) Approve documents through Lenders Legal department Review admin procedures Increase capacity to handle workload Structured Trade Commodity Finance system designed to mitigate associated risks
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Risk Mitigation approach
Risk Area Risk Likely Cause Preventative action
9. Insurance 1. Funding provided without adequate insurance on Bank owned commodity 2. Insurance Co unable to meet its obligations 3. Low class company Insurance inadequate Insurance not in place Insurer over extended wrong value insured too high deductible Insurance Company Not reliable Recognised insurance company to be used Bank to monitor insurance premiums Other Insurance Companies to be approved by Bank dedicated person to follow market dedicated person to review insurance
10. Taxation 1. Not a tax based transaction
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ACE Key Processes

• Site Inspection
• Know Your Clients Customer and all stakeholders
  (including transporter, storer and processor) for
  each transaction
• Deal specific Commodity Profile
• Warehouse Inspection
• Each service is broken into three steps
• Pre Deal and Deal Approval process
• Design sequence of events
• Identify risks and mitigants from Bank point of
  view
• Execution
• Maker /Checker concept with approvals by CSM
• Administration and Reporting
• Independent issuance of WHR and RO
• Independent reporting and tracking
• Loan justification
• Mandatory Credit Support approval

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BUSINESS PROCESS OVERVIEW
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ACE GLOBAL Lenders - Synergies
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ACE GLOBAL Lenders - Synergies
Lenders CONVENTIONAL SCOPE
ACE GLOBALs SCOPE
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E3C - Enhanced Credit Commodity Control
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E3C - Enhanced Credit Commodity Control
Spans the entire value chain beginning with the
post harvest stage and encompasses the processing
movement of commodities with lenders. It gives
lenders comfort through

• Real time access to the location
• Weight, quality and quantity of commodities
• Single point of interface between the lender, the
  borrower and the value chain
• Enabling the lender to monitor asset based and
  asset conversion lending through market to market
  evaluation

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E3C - A Unique Solution to mitigate Performance
Risk Secure Transactions
Its Core Functions

• Guarantees / Certifies the Collateral
• Facilitates end-to-end (Value Chain) Trade
  Finance
• Facilitates Collateral Transfer
• Risk Assessment
• Escrow Agent Facilities
• Facilitates Settlement on Exchanges
  guarantees delivery system
• Issues of Electronic Warehouse Receipts
• Mitigates Performance Risk
• Supports parastatal bodies revenue collection

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ACE GLOBAL E3C and approval process
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ACE GLOBAL E3C Deal Life Cycle
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legal appraisal and definitions
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Important Definitions

• Bailment- The transfer of the possession of
  Goods by the owner (bailor) to another (the
  bailee) which shall thereafter maintain
  notorious, continuous and exclusive possession of
  all the Goods, for particular purposes such as
  hiring, financing, pledge of goods, and the
  delivery of Goods for carriage, safe custody or
  repair.
• Notorious possession is evidenced by numerous
  conspicuous signs placed by ACE GLOBAL at the
  storage premises. Continuous and exclusive
  possession is assured by the fact that ACE GLOBAL
  has one of its employees or agents or
  representatives on duty at all times when the
  premises are unlocked and that anyone permitted
  to enter the premises does so only at the will of
  ACE GLOBAL or with its consent.
• The foregoing steps accomplish an effective
  change in the possession of the goods and
  premises. Thereafter, warehouse receipts may be
  issued at the borrowers premises in respect of
  Goods stored therein and the constructive
  possession of the Goods is maintained by ACE
  GLOBAL for and on behalf of the lender / Bank
  throughout the duration of the financing and till
  the goods are required to be released.
• Collateralized loans- Collateral is a synonym
  for security provided in order to secure an
  obligation. Bankers ask for collateral on a loan
  as a measure of added security. This is to give
  the Banks claim against the enterprise a
  preferred position with respect to repayment if
  the enterprise should fail to honour the loan.
• Pledge- This is the act of depositing property
  of some sort with a lender with the intention
  that it be held by the lender as collateral to
  insure repayment of the loan. When a borrower
  furnishes the lender collateral to strengthen a
  loan and provides security for its obligations
  under the financing extended by the lender, the
  borrower, is said to have pledged the collateral
  to the lender. In that
• The person depositing the property with the
  lender, (the borrower) is referred to as the
  pledgor, while the person in whose favor the
  pledge is executed is called the pledgee (the
  lender).
• There can be no pledge without obligation. The
  pledge is the agreement which relates a certain
  deposit property to a certain obligation, as a
  result of which that property becomes collateral
  to that obligation.
• In order to render the pledge effective and to
  perfect the lien thereunder, the borrower must
  place the goods into the constructive possession
  of the lender, whether directly or where agreed,
  with an independent third party (such as a
  collateral controller acting on behalf of the
  Bank) under and pursuant to the legal principles
  of Bailment.

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Important Definitions Contd.

• Lien The right to retain possession of a
  property until all charges against it are paid.
• Types of Liens
• Possessory Lien - When one person holds the
  possession of anothers property and has to
  perform services upon it for which he is entitled
  to remuneration, the said person automatically
  obtains- by the general principles of law- the
  right to retain possession of the property until
  all charges against it are paid. This right is
  known as a lien. The lien does not give the
  creditor any rights other than that of retaining
  possession until the charges have been paid,
  (unless specifically provided by the agreement).
  However, some jurisdictions do provide a
  provision to creditors, or lienor, the right to
  sell property after a reasonable period in order
  to get funds with which to pay off the amount
  owed by the owner of the goods.
• Bank - Pledgees lien The pledge creates the
  collateral relationship between the deposit goods
  and the loan by creating lien upon the goods in
  favor of the lender a pledge. A Bank-Pledgees
  lien differs from a regular lien in that when a
  property has been pledged specifically for the
  purpose of securing an obligation the creditor
  has the legal right upon default of the debtor-
  to sell the property in order to obtain funds
  with which to retire the debt.
• Warehousemans lien/ Collateral Controllers
  lien The warehouseman/ collateral controller
  is automatically given a lien upon goods stored
  under a non-negotiable receipt for all lawful
  charges for the storage and preservation of the
  goods and for the sale of the goods where
  default has been made in satisfying the
  warehousemans lien. Until his lien is satisfied
  the warehouseman/ collateral controller may
  refuse to deliver the goods. If he releases the
  goods he loses his lien upon them. The lien is
  limited to the charges arising in connection with
  the goods covered by a particular receipt.
• Full Outturn Guarantee / FOG- The insurance
  coverage extended to differences and shortages in
  quantities of any Goods under specific terms and
  conditions.
• Full Outturn Quality / FOQ- The insurance
  coverage extended to defects and differences in
  quality parameters and/or specifications in any
  Goods under specific terms and conditions.
• "Misappropriation shall mean unauthorized,
  fraudulent or dishonest appropriation or use, or
  unexpected or unforeseen or unexplained loss of
  the Goods under collateral management / Field
  Warehousing and /or monitoring and/or storage
  supervision by ACE GLOBAL and shall, inter alia,
  include the risk association with fraud,
  defalcation, misapplication, embezzlement,
  fraudulent transfer of ownership from the insured
  interest and dispossession thereof (except that
  which solely results from a governmental
  intervention).

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GROUP CONTACT DETAILS
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Main Regional Offices Contact Details
www.ace-group.net